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In the last year, the political winds on climate change have shifted dramatically. A cap on the emissions of carbon dioxide and other greenhouse gases is now widely seen as inevitable. But that just leads to another huge debate, over how the required reductions will be achieved. And into this debate comes an interesting new idea, a carbon dividend.
Imagine that legislation requires emissions to be cut 20% by 2020 and 80% by 2060. Getting there means that caps have to be put on each
sector of the economy and each industry. Or in other words, each sector and industry will have the right to emit only a certain amount of greenhouse gases.
Those rights are obviously valuable. The first question is whether those rights should be given to industries or auctioned off. The former--the handout--would result in a huge windfall to those companies (since the right to emit carbon would be worth a tidy sum, estimated to be between $10 and $100 per ton, depending on the overall cap). The latter—the auction—would raise the price of energy and goods, hitting consumers' pocketbooks to the tune of hundreds of billions of dollars. But the auction would also bring in hundreds of billions of dollars.
From an economic point of view, the auction is a better solution. And indeed, presidential candidates like Hillary Clinton, Barack Obama, and John Edwards favor that approach.
But what would be done with the money? The usual idea is to use a big chuck the pay for incentives or direct subsidies for new cleaner technologies, or even to help Detroit retool to make more fuel-efficient cars. But there’s a potentially better approach, being pushed now by Peter Barnes, founding director of a small think tank called the Tomales Bay Institute.
Barnes’ idea is to hand the money equally to all Americans as a dividend, much like the regular checks that Alaskans get from the state’s oil revenue.
Barnes figures that the money isn’t needed to boost new technologies. After all, the higher prices for fossil energy (caused by the cost of carbon emissions) will make wind, solar, and other sources of power competitive without added subsidies. And returning the money to Americans can start what economists call a virtuous cycle. On average, each American will get back about as much as he or she has to shell out because of the price of carbon. But those who change their lives to use less energy will pay less, while still getting the same dollars from the government. That's a powerful incentive to be even more energy efficient. “Those who conserve are rewarded, while guzzlers pay more,” says Barnes.
Will the idea fly? It has a tough road ahead. Even if Washington puts in a cap and auctions off the permits, the temptation to keep the money and use it for pet programs is huge. But it is an idea that should be on the table.
BusinessWeek correspondents John Carey and Mark Scott, cover the green scene, keeping on top of the business aspects of energy, the environment and climate change, as well as the technologies, policies, markets and people that are shaping how the earth's resources will be used in the century ahead.